Apple's 99-Cent Problem, but a Bi#%@h ain't one

Seems that App Store consumers are somewhat price resistant to anything over $0.99. Developers are flooding the store with 99-cent and free applications, crowding out pricier offerings like games.

by James Brightman on Thursday, December 11, 2008

Apple's 99-Cent Problem

There's no denying that Apple's iPhone and the corresponding App Store have been hugely successful. With more than 10,000 applications (2,000 or more of which are games) and over 300 million downloads so far, the App Store seems like a beast. In fact, Steve Jobs recently boasted that the store was generating a million dollars a day.

Upon closer inspection, however, it's clear that the App Store is nowhere close to reaching its potential. Why? The data (as cited by Fortune recently) shows that there's an absolute flood of applications over $0.99. The $0.99 category is actually the most popular (with over 3,000 applications) followed by free applications (over 2,000). These two combined are hogging the spotlight on the App Store, making it harder for more expensive applications to get noticed, and thus purchased. Games are typically priced $9.99 on the App Store, and this category has just 300 to 400 applications [Note that the data was compiled just prior to Apple hitting the 10,000 apps mark].

Pricing may be something that developers have to come to grips with if they want to be successful on the App Store. Veteran programmer Craig Hockenberry wrote a "Dear Steve" letter to Apple's CEO, pointing out, "We have a lot of great ideas for iPhone applications. Unfortunately, we're not working on the cooler (and more complex) ideas. Instead, we're working on 99-cent titles that have a limited lifespan and broad appeal. Market conditions make ringtone apps most appealing."

More complex applications, like games, need to be priced higher but that also means they're less likely to be seen, so it's a tough spot for developers to be in. "...what happens when we start talking about bigger projects: something that takes 6 or even 9 man months? That's either $150K or $225K in development costs with a break even at 215K or 322K units. Unless you have a white hot title, selling 10-15K units a day for a few weeks isn't going to happen. There's too much risk," Hockenberry explained.

He continued, "Raising your price to help cover these costs makes it hard to get to the top of the charts. (You're competing against a lot of other titles in the lower price tier.) You also have to come to terms with the fact that you're only going to be featured for a short time, so you have to make the bulk of your revenue during this period. This is why we're going for simple and cheap instead of complex and expensive. Not our preferred choice, but the one that's fiscally responsible."

via GameDaily

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